What Is a Good Credit Score?
A credit score, also known as a credit rating, is a number used to represent your credit history. There are three credit agencies in the UK, and each calculates their credit scores differently.
A good credit score, or a good credit rating, opens up a world of financial possibilities because it shows lenders you are a reliable, low-risk borrower. With a good score you're likelier to get lower interest rates when you borrow and longer interest-free periods on credit cards.
Read on for more details and the ins and outs of good credit scores.
What is a credit score?
A credit score is a number used to represent your credit history and gives potential lenders an idea of how reliable you are likely to be as a borrower. It takes into account everything that appears on your credit report, from how much you have borrowed in the past to how you handled those debts.
There are three credit agencies in the UK, and each calculates their credit scores differently:
- Experian's credit scores range from 0 to 999.
- Equifax’s credit scores range from 0 to 700.
- TransUnion's credit scores range from 0 to 710.
What is a good credit score?
There is no magic number that will unlock all the best deals. Not only do the three credit agencies have different scoring systems, but each lender also has their own criteria and interprets that information differently. So, an application that is rejected by one lender could be accepted by another.
Still, each of the credit agencies has a good credit ‘range’. If your score with them falls into that bracket, your credit application is more likely to be approved.
Here’s how the agencies break down their credit scores:
What does a good credit score tell lenders?
A good credit score tells lenders that you have borrowed money in the past and handled it responsibly. That means you made your repayments on time, you didn’t repeatedly go over your credit card or overdraft limit and you repaid what was owed.
When you apply for credit – whether it’s a £200,000 mortgage or a £200 overdraft – the lender wants to know that they will get their money back on time. The higher your credit score, the less risk you represent. This means that not only are you more likely to be approved when you apply for credit, but you are also likely to be offered the best deals.
If you have a poor credit score, that suggests you are a higher-risk borrower, and lenders could charge you more with a higher interest rate. (Learn how to rebuild your credit history.)
It’s worth noting that a poor credit score doesn’t necessarily mean you have mishandled debt in the past. It could be that you simply haven’t borrowed money before. If you have a limited credit history, it is difficult for lenders to judge whether you will be a reliable borrower or not, so your credit score will be low.
The importance of a good credit rating
A good credit rating opens the door to financial freedom. That’s because whenever you apply for anything that involves a company lending you money, they will check your credit score.
Beyond obvious forms of borrowing, such as a personal loan or a credit card, a poor credit score can affect your ability to get other things. This could include a mobile phone contract that includes a handset. The phone company is effectively lending you the phone while you pay for it in your monthly bill; a poor credit rating could mean you don't get approved.
Equally, you may find yourself unable to spread the cost of insurance. When you opt to pay your car or home insurance premiums monthly, rather than annually, the insurance company is lending you the money upfront to buy your policy, and you then repay it each month. If you have a poor credit rating, insurers may refuse this ‘loan’.
How to check your credit score
If you want to know how good your rating is, you need to check your credit score. You can do this for free with any of the three credit rating agencies: Experian, Equifax or TransUnion.
If you find that your credit score isn’t as good as you had hoped, there are a lot of ways you can improve your credit rating: from registering to vote to checking past addresses are accurate.
How to start establishing a credit history
If you’ve always managed your money well and never needed to borrow, when you do apply for a loan, mortgage or credit card you could be rejected for having a low credit score. (This is one of the great oddities of finance.) The lender can’t see on your credit report if you have successfully repaid debts in the past.
So, before you make that first application, you need to establish a good credit rating. This means checking your credit report and following the steps in our guide to improving your credit rating in order to build up a credit report that is attractive to lenders.
You could also consider getting a credit builder credit card to help you show to lenders you can handle debt responsibly.
Ruth is a freelance journalist with 15 years of experience writing for national newspapers, magazines and websites. Specialising in savings, investments, pensions and property. Read more